Daimler to buy stake in German engine-maker Tognum

ChristophRauwald

FRANKFURT (MarketWatch) -- Daimler AG
DAI, +0.06%
Wednesday said that it aims to acquire a 22.3% stake in German diesel engine maker Tognum AG (TGM.XE) for around EUR585 million from Swedish private equity firm EQT. The German automaker said its supervisory board has cleared the deal.

"Thanks to the optimized shareholder structure and the initial public offering in 2007, Tognum has become a globally leading producer of off-highway engines with above-average operating margins," Daimler said in a statement.

"As EQT indicated its willingness to sell its stake in Tognum, Daimler will now be able to protect its long-term supply relations with Tognum by taking over this equity interest," it added.

Daimler said it wants to acquire a blocking minority stake in the short- or mid-term and plans to appoint two members to Tognum's supervisory board. A blocking minority would be achieved through a stake of 25% plus one share.

"We are delighted that Daimler fully supports Tognum's growth strategy - as a reliable business associate and now also as a strategic investor," Tognum Chief Executive Volker Heuer said in a statement.

"With Daimler as a strategic anchor investor, the independence of the company that was achieved through the (initial public offering) has now been secured long term in the interests of our customers and shareholders," he added.

Tognum, which employs more than 8,100 workers, last year posted revenue of EUR2.84 billion, adjusted earnings before interest and tax of EUR390 million and net profit of EUR199 million.

Daimler said the deal is due to be completed in the third quarter at the latest, pending approval from antitrust authorities.

At 0940 GMT, Daimler shares traded down EUR0.73, or 1.5%, at EUR49.46 while Tognum shares traded down EUR0.06, or 0.3%, at EUR17.91, having risen sharply earlier Wednesday following the announcement.

In December 2005, the former DaimlerChrysler AG had sold diesel engine maker MTU Friedrichshafen and its off-highway activities, the core operations of today's Tognum AG, to EQT for around EUR1.6 billion, including cash, cash equivalents, debts and pension obligations.

At the time, Daimler was trying to offset a restructuring charge of around EUR950 million for job cuts at its Mercedes-Benz cars division through divestments of non-core activities.

Daimler Wednesday explained that it faced "numerous operational challenges" at the time. "This led to a focus on the core business, and Daimler therefore did not want to make the substantial investment required to improve Tognum's competitiveness," Daimler said.

Daimler said it continued to work with Tognum after the sale. The Mercedes-Benz plant in Mannheim, Germany, supplied more than 17,000 diesel engines and the Detroit Diesel Corp. plant in the U.S. more than 5,000 diesel engines to Tognum last year. These engines are used for agricultural machines, cranes, pumps and power generation systems. "Volumes in the fast-growing worldwide industrial-agricultural market are to be further expanded in the future," Daimler said.

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